EIA's Summer Gasoline Update

EIA projections for gasoline prices in summer and fall:

Nominal price levels are still expected to remain high by historical standards, with the average for regular gasoline expected to be $1.82 per gallon during the second half of 2004, compared to an average of $1.42 per gallon for the same period over the previous 5 years. For the summer (Q2 and Q3), regular gasoline prices are now expected to average $1.91 per gallon, slightly below last month’s estimate but still 35 cents per gallon above the 2003 average.

It appears to me that the current increase in petroleum price is a result of increased demand worldwide and OPEC decision to not worry too much if the oil prices are in the 30s. Joseph Stanilaw of CERA says that OPEC has realised that the world demand is not decreasing significantly with increased oil prices, and has no further interest in keeping the oil prices low.

I noted previously, that if the gas prices continue to stay at these prices, a very important psychological barrier will be broken. Unless there is a further spike in the prices, my belief is that the public will get used to $1.80 per gallon price at the pump, which is about a 30 cent per gallon or 20% increase!